Minutes of DTI Meeting, 3 Oct 85

Minutes of meeting with DTI London, 3 October 1985

Dick said he had personally requested the meeting to clarify his own position in the current Machinoimport situation and thanked the DTI for agreeing to the meeting.

Hall asked for clarification of the position of Dick, Metcalf, and Cooke. It was explained that Dick, although previously the Chairman of Consarc, had now retired from the company and was a director of BEPA, and Metcalf had an interest in share holding of BEPA and was a director of Consarc. Cooke had no connection with BEPA and was the Secretary of Consarc.

Hall asked if Consarc Engineering was intending to supply anything to BEPA for its Soviet contract, to which Metcalf replied that the only purchase order placed by BEPA on Consarc Engineering was for travel arrangements and accounting. Another purchase order was placed, but Consarc had not acknowledged that order and as far as he is aware it is not the intention for Consarc Engineering to provide personnel to BEPA for its USSR contract. The only exception is Metcalf personally but he is not a Consarc Engineering employee in this context.

Hall asked if Consarc is not intending to supply personnel to BEPA, what was the purpose of attendance today of Cooke. The latter replied that he was attending for two reasons: any outcome of today's meeting which affects BEPA has repercussions for Consarc and there are a few Consarc questions which Cooke intended to raise.

Dick resumed and said that he had formed his own engineering, design and consulting company (Vacuatherm Designs Limited) and it had a contract with BEPA for design and engineering services. He also confirmed he was a director of BEPA Limited. During his last trip to the USSR, Dick said he was representing BEPA and he inspected the site and assessed what could be done to get the Soviet project pushed on a bit further.

Mathers asked if the visit was of a marketing nature or of a legal nature. Metcalf answered this question by saying that the visit could be described as partly of a legal nature because of the outstanding matters on the Consarc order.

At the end of the thirteen day trip a protocol was produced on what could be done, within the American and British laws, on the installation problems of relatively mundane nature, water system, and so forth, common to all large installations. These problems normally occur and would normally have been rectified during the usual installation program.

The Protocol which was produced had some fourteen items which Dick, operating in his capacity as a design consultant, could assist in putting right. It was Dick's view that if these were put right, under his supervision, it would help solve Consarc's problem of the jeopardy in its future trading.

Dick continued and said that Consarc's problem is that HM Government has not told it how to proceed and if nothing is done, then Consarc's future trading position will certainly be blacklisted.

Dick was asked how long the project would take to complete with his assistance, to which he replied that in his opinion it would still be five years. On being asked how long it would take without his assistance, he replied that it could be up to ten years.

Metcalf interjected and said he felt these estimates were high, but said that if BEPA were not permitted to assist the Soviets, then they will find another company to perform the same tasks.

On the isopress side, Metcalf said that without the expert assistance of the isopress expert, that side of the project would never be completed. Metcalf explained the Stansted situation in detail and said in conclusion that even if Stansted changed its mind and offered to go out, he would refuse to take him along on the project.

Cooke was confused about the meaning of my comments regarding the isopress. The isopress we had sold was an oversized pressure cooker that had the proposed use of heating a pitch-impregnated part at high pressure to cut down on the number of heating and impregnation cycles required to make the product. Freeman was an expert of his pressure system. He was a clever person with a very small area of expertise.

It was already clear to me that the hornets' nest was the isopresses, not the furnaces. I did not know how to and therefore did not intend to continue work on the isopresses. Stansted's position was perfect for my plans.

Cotter (MOD) asked if the three furnaces had been connected up to the ventilation system. Dick replied in the affirmative but said that the after-burners had not been connected up. Metcalf said there was a strong smell of ammonia from the installation.

Dick had a vested interest in his comment about the after-burners. He had spotted a potential business for his company in the Soviet Union. The Ministry of Defense wanted to know if the Soviets were doing chemical vapor deposition at this factory. They had been told that this process was much more important than the high temperature furnaces, or the isopresses but they would never tell the equipment suppliers because it was secret. They sat like knots on a log for the rest of the meeting, as they usually did.

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I was Alice in Wonderland at that moment. If there was a genius somewhere in my body it was getting a work out. I was in an audience watching a great Shakespearean play. Secretary McNamara was clinging to a document marked MAD. Gorbachev and Reagan were making plans to meet in Iceland to finalize to at least offer each other a "zero" nuclear missile option. The little people were trying to regulate a process invented by God, called carbon vapor deposition. They were clinging to a document marked CVD.

On the side stage there were Her Majesty's English and Scottish legions. The commander of the Scots had already been crossed by the Queen as a Subject of the Crown. He was a white haired, short, and feisty son of a Jewish pawnbroker looking to make his pot of gold. The commander of the English was a dedicated civil servant, who as a brigade actually controls the United Kingdom. His face was getting redder and redder as the people from a former colony were pulling his hair.

This MAD race was clearly viewed through the looking glass by a pair that of eyes that was half American and half Russian marching to his own drummer. At that moment I knew there was an ending to a best seller.

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Metcalf continued and said that the isopresses in their present configuration represented an extreme safety risk. Metcalf explained, for the benefit of the MOD that one of his former companies (Cragmet) had designed a miniseptor system back in 1970 for a NASA project connected with making rocket nose cones for a project concerned with the planet Mars. The miniseptor then did not function successfully. He presented documents to the meeting showing the purchase order and relevant drawing sketches of the Miniseptor. He offered copies of these and additional information to be taken up later if requested.

In summing up, Metcalf said he wished to have nothing to do with the isopresses whatsoever, he confirmed that the high temperature furnaces were up and running and all that he wished now to be allowed to do was to commission the low temperature furnaces.

On being asked by Hall what he did during his last trip to the USSR site, Metcalf replied that he witnessed some boxes being opened (i.e. the goods recently shipped under Government approval) and that he also signed a protocol separate from that of Mr. Dick. This protocol set the parameters of the BEPA contract. A copy of the protocol (in the Russian language) was handed over (was copied and returned to Metcalf). Metcalf explained that this protocol relates to the low temperature furnaces only.

Hall asked Metcalf if this was the only protocol he intended to sign, and the latter affirmed that it was.

Hall asked Metcalf if he was sure that this protocol did not infringe on the new USA regulation.

Metcalf replied and said that the Federal Register changes of the 11th and 21 September 1985 seem to cover the "high temperature" technical transfer of data, but do not encompass the low temperature. He continued by saying that he has obtained Counsel's opinion confirming this interpretation and he also stated that a formal request to Commerce has also been made asking it to confirm this view.

Hall asked what does Dick intend to do next.

Dick replied that he had a decision to make as to whether to go out to assist the Soviets, which would assist Consarc out of its future trading difficulties and would of course assist Dick personally in a financial sense, although the latter financial gain is far from considerable.

Hall said that to summarize what was undertaken in the USSR during the last trip was that two Protocols were signed:

1) That signed by Mr. Dick on the mundane matters as described.

2) That signed by Mr. Metcalf on the low temperature furnace.

Metcalf said the above was correct but that Mr. Dick's protocol was a "one sided" protocol.

Dick asked the DTI if it was asking him not to go back out to the project site in USSR.

Hall (DTI) asked if Dick had taken legal advice on this question and when Dick replied in the negative, Hall said that perhaps it might be prudent to think about doing so.

Hall continued by saying that there certainly are limitations in British legislation in this area, following the changes of 8th February and the subsequent refusal of Consarc's export license application for the balance of the contract, and it follows that the DTI remain very concerned on further action which might bring forward the time which the project will take for completion. He continued and said that Departments would be glad if BEPA and/or Consarc could get themselves out of the situation without incurring the penalties referred to earlier.

Cooke said from earlier correspondence and discussions it appears that HM Government and the DTI were unable to give Consarc a letter of instruction to this effect as they had not the power of law to write such a letter. Whilst Consarc must accept that, if it is so, Cooke then said that if the DTI or HM Government could provide a letter of request not to proceed further, then we believe that such a letter would be sufficient to enable Consarc/BEPA to withdraw without incurring the penalty of blacklisting.

Hall replied by saying that at the moment he certainly did not have the power to provide such a letter of request but would take the necessary steps to ascertain if such a letter could be provided.

Metcalf said he had considered using the letter from Stansted for the same purpose, but it would probably not be sufficient nor would it be proper to use it.

Mr. Mathers (legal dept. DTI) asked if Consarc/BEPA was saying that a letter of request if provided and if shown to the Soviets would allow Consarc/BEPA to withdraw and at the same time still protect its future trading position.

Metcalf said he had many years experience of the Soviet bureaucracy and a letter of request from Government would be interpreted by the Soviets as an instruction and he believed that damage to future trade could be minimized.

Hall said that to recap on what the DTI was being asked to do at the moment was -

1) To consider providing a letter of request for BEPA/Consarc not to proceed further.

Hall asked Dick and Metcalf when they next intended to go back out to Moscow. Dick said he still planned to go out the week after next and Metcalf said he planned to go out next week.

Hall asked what they both intended to do on these trips. Dick said he intended to keep the discussions going and he felt that he had to go to protect his own credibility and also Consarc's future trading position.

Metcalf said the reason he was going was to bring his wife back out as she now had her visa renewed and also to keep the dialogue going with the Soviets.

On another matter, although perhaps not directly relevant to the thrust of this meeting, but nevertheless pertinent to future trading with the Soviets, Cooke said he was advised yesterday by ECGD that future business with that country would seem to be not insurable in relation to contract frustration through changes in the export licensing regulations.

Hall said that he had not been aware of this but that this was not a matter for DTI.

Mr. Mathers asked if this was a general change to ECGD policy or a change applicable to Consarc only. Cooke replied that it appeared not to be a general policy change (although it appeared this is being reviewed next week at a high level) and the change yesterday may only apply to Consarc and perhaps other selected policy holders, whose products are regarded as "high risk" by ECGD.

Metcalf mentioned the situation of the alleged letter from MOD to its own purchasing Departments precluding them from talking to Consarc on sales enquiries.

Hall said he had been made aware of this following Messrs. Wilson & Cooke's visit to the Scottish Office. He was making enquiries to get to the bottom of this and would report back in due time. It did appear that possibly such a letter had been written back in March 1985 when Consarc was possibly going into liquidation and if the letter had been sent it was a normal precautionary letter to purchasing departments.

Cooke said that what Hall had said was very much in line with that which Consarc has learned but what was particularly damaging was that it had not been withdrawn until about two weeks ago.

Hall said he wished to turn to the matter of CVD and asked if Consarc has an actual order from the USSR for such equipment.

Cooke replied in the affirmative and said it was a Plansee type CVD coating unit, the order for which was received in May. Cooke continued and said that full details had been given at that time.

Hall said that as Consarc had been advised, CVD is still being actively considered by CoCom and he wished to underline the fact that Export Laws have been changed in the past after orders have been received, as Consarc is well aware. He said he could say no more than that.

Metcalf asked if DTI had received notification of Calcarb's purchase order from Machinoimport, to which Hall replied that if it had been sent his Department would have it.